Adam Coffey: The Exit Strategy Playbook: The Definitive Guide to Selling Your Business

Transcript

[0:00:27] DA: Thinking of selling your business? Explore the universe of potential buyers, learn how to assemble a team of expert advisors to prepare your business for sale, walk step-by-step through a typical investment banker-led mid-market sale process from start to finish, in Adam Coffey’s new book, The Exit Strategy Playbook. Adam uses his experience of executing a buy and build strategy, and he’s bought and sold more than a hundred companies ranging in size from one million to one billion, and he wants to show you how to successfully navigate the sale process. The book isn’t about selling fast, it’s about selling smart and achieving maximum value for the time and effort you’ve put into your company. Hey Listeners, my name is Drew Applebaum and I’m excited to be here today with Adam Coffey, author of The Exit Strategy Playbook: The Definitive Guide to Selling Your Business. Adam, thank you for joining, welcome to The Author Hour Podcast.

[0:01:20] Adam Coffey: Good to be here, Drew, excited and pumped up to tell your listeners all about my new book.

[0:01:25] DA: Let’s get it. Before we get into the book, just remind us again, give us a little bit of a rundown of your professional background, if you will.

[0:01:33] Adam Coffey: Sure, I tell people I meet for the first time four things about me, real brief. Number one, veteran US Army, shoutout to all the veterans out there, military taught me something about discipline, teamwork, leadership. Number two, background as an engineer, engineering made me a meticulous planner. Number three, General Electric, I was a GE executive back in the heyday of GE, the Jack Welsch era. It was GE that really taught me how to run a business. Then fourth and final, I have over 20 years’ experience as a CEO, building three different national service companies for multiple private equity owners in each business. I’ve built them from mom and pop size, up to billion-dollar companies and I’ve done that three times across a 20-year period. 20 years’ experience, not my first rodeo, definitely some learned and shared experiences over those 20 years to be sure.

[0:02:28] DA: Now, writing a book isn’t easy and this is now your second book and this is obviously a space that you live and breathe. Sometimes when authors, when they’re writing their book, they’ll have some major breakthroughs and learnings, sometimes by doing some research or by digging deeper into some of the subjects. During your writing journey this time around, do you have any of those major breakthroughs or learnings?

[0:02:49] Adam Coffey: I’ve been a guest speaker at multiple universities, business schools and their executive MBA programs. Really, when I start to think about a book, there’s a process I go through as an individual where I start thinking about the material I potentially will start using the material in the form of a lecture, you know? Start refining the book to be as a lecture, PowerPoint presentation lecture, and continue to let it evolve in my brain and then finally, it’s time to sit down and get behind the keyboard. What I’ve learned from working with Scribe in the past on the first book and now the second is, really, it’s about sitting down and creating an outline and it’s very granular when you think about a business book, it’s okay, there’s going to be four sections, three chapters minimum in each section and what does each chapter within those sections going to say and what’s the topic going to be? I go back to my engineering roots, really and I start to just methodically lay it out. Between being a former GE executive and kind of being a strategic thinker, strategic planner, being that engineer, it’s like first, it starts in my head, I refine it as a lecture, then it becomes an outline and then I start to take what might be a three- or four-page outline, get it up to where it’s a 10, 12-page outline and then it’s 20-page outline and then before you know it, you're ready for that author experience and then really ready to blow it out and actually make it a book. For me, that’s the process I go through, it’s thought in my head, turns into lecture at a university, turns into an outline, turns into an outline with a lot of meat and then start the Scribe experience and start working with a publishing team to add the depth and character to it to form a book.

[0:04:41] DA: Now, in your mind, when you were creating these lectures, when you eventually wrote the book, who were you write things book for? Is this for business owners right now who know they want to sell and just need some help navigating that market or is this for people who are considering a sale in three years, five years? Who could have the most takeaways from the book?

[0:05:01] Adam Coffey: There’s really two different kinds of people that I had focused this book on and it’s really the same two avatars from my first book, Josh and Rose. Rose was a Fortune 500 executive who was transitioning from the Fortune 500 world was being recruited by private equity to come run a middle-market private equity backed company that you knew was going to be sold just by virtue of private equity every three to five years or so. So Rose potentially has never been through a sale process yet but she’s been recruited to come run the company and is gearing up for the ultimate sale of the business. Then it was written for the second avatar which is, his name is Josh and Josh owned a plumbing company, built a plumbing company and spent 20, 30 years of his life growing this business. It’s his life’s work. He’s getting older and he’s thinking about, “Geez, what do I do? Am I going to be in business forever? Is there an end to this? Am I going to bequeath this business to my son, to my daughter? You know, is it going to get sold, what do I do? I’m getting old, I’m starting to think I’m getting conservative and I might be making bad business decisions as a result.” It was really the universe of people who are either finding themselves running a business that’s going to be sold or those who have started a business and have spent their entire career building it and now, they’re contemplating what next steps look like. By virtue of my experience, doing, in the private equity world, what’s known as buy and build, I literally have bought and sold over a hundred companies in my career and they’ve ranged in size from a million in revenue or enterprise value, up to a billion. There’s been many, many different experiences that I’ve had both as a buyer of companies, a builder of companies and then ultimately a seller of companies. Oftentimes, entrepreneurs are experts at building their own business but they’re new to the experience of selling a business. Selling a business really is an art and there’s a process to go through in preparing a business for sale in order to ultimately find the right buyer and to get maximum value. This book is written for both of those universes.

[0:07:16] DA: Real quickly, can you touch on just a few of the differences between your first book and this book?

[0:07:21] Adam Coffey: Sure, the first book was called, The Private Equity Playbook and it was really all about private equity, private equity very quietly has gone form a few hundred companies 30 years ago to 6,000 and from a few hundred billion dollars in assets under management, to over four trillion. Today, 50 percent of all businesses that are bought and sold are bought and sold by or to private equity. Private equity is very slowly, methodically taking over the market in terms of who’s a buyer and who’s a seller of a middle-market sized companies and there was very little knowledge about what private equity is or what it does or how it functions. The first book is all really focused about private equity, what is private equity, how does it work? How does it raise capital, how does it use t hose funds to buy companies? What’s it like to partner with a private equity firm, how do you tell one apart from another? And then, if you do sell to private equity post close, what’s life going to be like for you as a person who sold a business to private equity? It’s really all about private equity but just about private equity. The exit strategy playbook, private equity is one element of it but it really just talks about who is the universe of buyers, there’s strategic buyers, there’s strategic buyers that fall into different categories. Those who turn the lights off, those who turn the lights on and then you have financial buyers, which includes private equity. You’ve got IPOs, you’ve got specs, you’ve got owner operators. The exit strategy playbook is not about private equity but private equity is included as a subset of it. Really, it’s just about, “Hey, I’m going to sell a company, who is the universe of potential buyers for my business? How do I determine what is the right kind of buyer for my business, based upon my own personal goals and objectives and then how do I prepare the business for sale, how do I build an advisory team of people who will guide me through that sale?” because it’s the first time many people are selling a business, they’re going to need help and they’re going to need to be able to leverage, call it the experiences that I’ve had buying and selling a hundred companies. Then finally, what does the actual transaction process look like when you engage an investment banker to help you sell a business that you’ve built? Private equity is a little piece of it but it’s a much broader set of experiences that we’re drawing upon here to help someone determine, what’s the best exit path for them in their business.

[0:09:51] DA: You mentioned a lot of things there and I want to dig into a bunch of them in a moment. I want to bring up one thing, you sort of actually touched on earlier. You said that business owners can sort of see early indicators that it’s time to do something with their business and then maybe they’re looking ahead and they’re not sure what is in their future. What are those indicators and what should current business owners who, maybe selling isn’t even on their radar yet, really be looking for out there, so selling should be on their radar?

[0:10:20] Adam Coffey: It really kind of starts with age. I think when a lot of entrepreneurs start business younger in their careers, it’s all focused around building a business, building a business, generating the wealth, creating that stable income stream for their family. As time goes on, they start to get a little bit older, the empire has grown now and the risks that they were taking in their 20s and 30s start to become not as appealing to them as they’re entering their 40s, maybe even getting into their 50s. People start to get a lot more conservative when it comes to investing in their businesses. They’re getting – it’s a shorter runway ahead of them, they’re talking to friends who are getting closer to retirement age and so, you can really see it going on in their heads as they exit kind of the 20, 30s get into the 40s and 50s, potentially even in their 60s where all of a sudden, it’s like, “Okay, I’ve been doing this for a very long time, my focus was on building the empire. Now I’m top of the empire and I’m not a spring chicken anymore. What should I do?” It really starts leading to kind of hesitation I think is a good word to describe it, “I used to be aggressive, I used to open up a new office in a different city every year and I’d buy a bunch of trucks and hire a bunch of people or I’d open up a new location and it cost a lot of money and takes time to build these businesses and you know, I just don’t know if I want to do that anymore.” The empire’s big enough, there’s all kinds of telltale signs that are going on and they’re usually driven by the lifecycle of the individual. As they’re aging, new questions are popping into their head that didn’t used to pop I not their heads before. It was just gung-ho, go, go, go, grow the business. Now, all of a sudden, they’re starting to second – there’s a voice in their head that’s starting to second guess everything that they’re doing. I think those are the early indicators that it’s time to do something and the book’s real design is, try to help you figure out just what is that something.

[0:12:22] DA: I think everybody out there knows that it’s not as easy as just saying, “Hey, if somebody’s interested in buying this business, I’ll show them the books and people like our brand and it should be that easy” we know it’s more nuanced than that. What can business owners do to prepare their company for a sale and what does the timeline look like once they start that process?

[0:12:43] Adam Coffey: Well, it’s frequent, again, as a guy who has bought many, many companies over the years, I can tell you that most business owners don’t actually prepare for the sale, they just wake up one day and say, “Okay, it’s time to sell.” They can do that, people do it every day and they still get through a transaction. The focus of my book is not just about exiting and it’s really not about exiting fast. It’s about exiting smart, it’s about how you obtain maximum value, be thoughtful about the exit, make sure that you are selling it to the right people and for the right reasons and maximizing the value. Generally speaking, it’s ideal if a person starts thinking about this three years in advance of a sale. Can you do it in a month? Yeah, it happens every day but at the same time, a person who is actually thinking about potentially selling down the road will actually start to alter the way that they are operating their business in order to start setting it up for a sale. Ultimately, when you get into a sale process, a buyer is going to want to heavily scrutinize three years’ worth of financial data. You know, when you’re a business owner, how there is a lot of noise in your books and your goals and objective is, “I don’t want to pay any taxes, so make my earnings absolute zero is better, please” you know? It’s like, “Hey, the lake house is a business expense and uncle Jimmy has been on payroll for five years and he hasn’t worked in the business in the last three years but I am still paying him because he’s uncle Jimmy.” There is some cleaning up that needs to take place. Often times when I’m buying businesses, I encounter entrepreneurs who own real estate. Most private equity buyers or strategic buyers, you know, anybody in the buyer universe really doesn’t want to own your real estate. It is a different asset class. So there is some cleaning up to do as it relates to real estate that the entrepreneur might own as a part of this business empire that they’ve been building. There is how the books are done, understanding some new terminology that may not have meant anything to them over the last 20 years, you know like EBITDA. What is IBETDA? Why do I care about IBETDA? The buyers certainly care about IBETDA so maybe I ought to learn about this thing called IBETDA and start working on preparing my business for sale based upon lining up with what the buyer universe is really going to be looking at. Preparing for sale also includes simple things like taxes. Geez, you know where you live matters people. Imagine if you own a business in the State of California and maybe you’re doing business also in Nevada and in Arizona. Well, if you sell a business for a $100 million and you live in California, you’re going to pay $13 million in capital gains tax if you had a gain of a $100 million and if you live in Nevada, you’re going to pay zero. But you know what? The time to sell your home and move and re-domicile is not three months before you sell the company because the State of California is going to come after you and, by God, you’re not going to stand a chance! So there’s a process that needs to take place and often times it’s a multiple year process to make sure your domiciled in the right place, to make sure that your business is financially prepared. All buyers are going to do a quality of earnings to try to determine what are the true earnings of the business, what is the EBITDA and you know, you shouldn’t sit back and wait for someone else to decide what your quality of earnings should look like. Often times, a seller should do a sell side Q of E and dig into their own financial picture with their own accountants and present a picture to the buyer universe with their own thought about what valuation on that business should be that’s supportable. There’s really just a lot of work and then finally, who’s going to guide you through all these different steps and these transactions? Is it going to be the lawyer that you went to grade school with who handles everything in your life from estate planning to the divorce you had three years ago to whatever? You know the slip and fall that happens? Selling a business is a very specialty area of legal practice and so we talk about how do you find a business lawyer to help represent you? How do you find an accountant for the business? How do you find tax advice for yourself as an individual? How do you find the investment banker, which is really the realtor that is going to guide you through the transaction? And we’re going to jump into the middle of all of that and so the person, the casual reader who picks up this book spend three, four hours flipping through it is going to come away with 20 years’ worth of my learnings over a career of buying and selling more than a 100 companies and really billions of dollars in financial activity. You build a business, you’re an expert but when it comes to selling a business, for many people it’s a one-time event that they’ve only done once or they’re only going to do once and you can leverage, call it, shared learnings from people who’ve been doing this for decades and they do it all day every day and that’s what I’m trying to present, 20 years’ worth of knowledge in a couple of hundred pages.

[0:17:42] DA: Now, you keep mentioning building a team and bringing people on, bringing real professionals on. Do you really need this outside pipeline professionals to get that maximum value for sale? You know, that’s another investment. Does this investment always end up paying off?

[0:18:00] Adam Coffey: Well, if you think about the financial buyer universe, you think about someone like private equity and you ask yourself, here’s the most sophisticated money people on the planet when it comes to buying and selling businesses and I can tell you that 100 percent of the time, private equity sponsor who is buying or selling a company uses an investment banker to handle the transaction and so that should tell you something right off the bat. You know, I equate it in the book to realtors and if you think about the process of selling a home in this country at least, the vast majority of all transactions there’s a realtor representing the seller, there’s a realtor representing the buyers. You know many times, it’s different people. It could be the same person but there is always somebody in the middle of the buyer and seller universe. When you’re selling a company, you need the realtor for your business and that’s a person that’s called an investment banker. They come in different sizes and shapes and they represent different size companies or different industries or they have different specialties. There’s thousands of them out there and so really it’s about getting competent professional advice. Can an entrepreneur just up and say, “I’m going to sell my company and I’ll call Billy Bob, my lawyer and he’s going to take care of things and I’ll deal with one or two buyers and I’ll handle this all myself. I’m capable because I’ve built this multimillion dollar business.” And I would tell you that the overwhelming experience that I’ve had is I can tell the difference between the sophisticated seller and unsophisticated seller in a matter of minutes and there are sharks out there who are circling, who are bound to determine to take advantage of an unprepared seller and/or to take advantage of a seller who just really doesn’t understand the game. You know often times, when someone is selling a business, this is the biggest financial transaction of their entire life. Don’t you think you would want to maximize it’s potential and don’t you think you’d want to leverage? What the team of advisors does is it levels the playing field. As you’re going out to market, you’re bringing in very sophisticated buyers and you as a builder of a business are an expert in your business but you’re not an expert in selling companies. It’s your first time and you can neutralize the playing field by surrounding yourself with very competent professionals who will then guide you and take on, you know they become your army to take on all of the people on the other side of the table who represent the buyer universe and they will very quickly make sure that you’re getting the best price for the business, the best terms in the contract, the least amount of trailing liabilities. You know, there is so many more nuanced facets of selling a business than just the headline price that a company sells for. The devil is always in the details and you need a competent team of professionals to guide you.

[0:20:49] DA: Now, in an overall sense, if you had to just pick a few, what are the most common but really big mistakes that people make in that process and what do they usually missing?

[0:21:02] Adam Coffey: Well, I like to use an analogy of doctors when I talk about this, so let’s go back to lawyers for a second. If you’re not feeling well, you go to your family doctor and maybe you go to the urgent care and see the doctor who’s on call on Friday night and he can help take care of basic needs that you may have but would you go to your family doctor because you wanted to save money on brain surgery if you had a brain tumor? No, you would go to the specialist. You would go to the best brain surgeon money can buy that your insurance will allow you to see and you’ll say, “Please Mr. Specialist, fix my brain” and the same is true in this particular case, selling a business is a specialty area of legal practice. It’s like the brain surgeon. You don’t go to your family practitioner, you’re general practitioner in law, you want to go to someone who does nothing but buy and sell companies all day and represent buyers and sellers. They know different industry nuances, they know about trailing liabilities and what is normal when a company from a certain industry of a certain size is sold. Often times in a legal agreement, when I’m dealing with a generalist versus a specialist, what we see on our side of the table as the buyer is we see them focusing on the wrong areas and you know what? I’m a good guy and we use market terms. I don’t seek to take advantage of sellers when I’m buying companies but there are people out there who will. You could change five words in a standard paragraph and totally alter and create millions of dollars in potential trailing liabilities for the seller of a business. You need a specialist. This is brain surgery, this is not a cold and so that also holds true with respect to investment bankers making sure you get a banker who understands your industry. They spent an entire career knowing who the buyers in your industry are at different size levels. Again, you want specialty advice that deals with the nuanced differences in your life and in your company and you don’t want the help of a generalist. You need very specific advice when it comes to tax planning, estate planning, the accounting help that you need, the banker help, the lawyer. This is an area where you need a team and you need a competent team and in this book, I actually show you how to go out and find them. Some of the places where you can actually go online and find who these people are in the areas around you to help.

[0:23:28] DA: Well Adam, we just touched on the surface of the book here but I just want to say that writing another book that just is helping folks navigate the world of business is no small feat, so congratulations on having your second book published.

[0:23:39] Adam Coffey: Well, thank you. It really came from the inspiration of the first book. I had so many people around the globe, I encourage it in my book to please reach out to me on LinkedIn or through my website and so many people and they kept asking questions after the first book that really led to the second book and it’s, “You know what? I’m thinking of selling my business, what about this or what about that?” and you know, it’s kind of the next evolution of the first book. You put them both together and it creates a set. There are more books planned too. I ultimately have a five-book set that’s going to be all be called Playbooks that all deal with these different entrepreneurial issues and so we talked about private equity in the first book. We’re talking about exit strategy and how to exit in this particular book. More to come but it is really inspired by all the questions and outreach that I got from readers of the first book and this book really addresses a lot of those questions that people kept bringing to me. Excited for it to release, it’s coming out the second week of September. It’s going to be available everywhere and in all formats, so there will be audio book and Kindle and hardcover and paperback. Looking forward, if you’re a potential reader out there, please reach out on LinkedIn. Don’t hesitate to follow up, I really love the outreach from the first book. I’m looking forward to hearing from everybody, so I think that’s about it.

[0:25:04] DA: Well, Adam, you know this has been a pleasure and I am excited for people to check out the book. Everyone, again the book is called, The Exit Strategy Playbook, and you could find it on Amazon. Adam one more thing, besides checking out the book, you did mention LinkedIn, is there anywhere else where people can connect with you?

[0:25:18] Adam Coffey: Yeah, Adam E. Coffey, like the drink but spelled differently. I think that’s what John Coffey said in the Green Mile, so adamecoffey.com. That’s another place you can find me.

[0:25:30] DA: Wonderful. Well, Adam, thank you for giving us some of your time today, and best of luck with your second book, and looking forward to book number five.

[0:25:38] Adam Coffey: Hey, thank you for having me on. I appreciate it.

[0:25:43] DA: Thanks for joining us for this episode of Author Hour. You can get Adam Coffey’s new book, The Exit Strategy Playbook, on Amazon. Also, you can also find a transcript of this episode and all of our other episodes on our website at authorhour.co. For more Author Hour, subscribe to this podcast on your favorite subscription service. Thank you for joining us, we’ll see you next time. Same place, different author.